It looks like Discover Financial Services (NYSE:DFS) is about to go ex-dividend in the next 3 days. You will need to purchase shares before the 21st of August to receive the dividend, which will be paid on the 5th of September.
Discover Financial Services's next dividend payment will be US$0.44 per share. Last year, in total, the company distributed US$1.76 to shareholders. Based on the last year's worth of payments, Discover Financial Services has a trailing yield of 2.2% on the current stock price of $80.35. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Discover Financial Services paid out just 19% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Discover Financial Services's earnings per share have risen 11% per annum over the last five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Discover Financial Services has delivered an average of 22% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
Has Discover Financial Services got what it takes to maintain its dividend payments? Companies like Discover Financial Services that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. Overall, Discover Financial Services looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.
Wondering what the future holds for Discover Financial Services? See what the 20 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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